Hi all!
Just want to run a quick thought by the wonderful people of this forum.
The goal is to reduce non-deductable debt.
My wife and I currently live in our apartment, which has a mortgage of 72.8% LVR and is our primary place of residence. We’re building a house that should be ready in the May-June time period this year, that we will be moving into. Thus, our apartment will then be rented out and become an income producing asset.
What I want to do is to draw equity out of our apartment up to 80% LVR and push this extra cash into the offset account attached to our new house. However, I want to do this *before* we move and therefore before the unit becomes an investment.
Will I still be able to claim tax against the full 80% of our apartment mortgage, as the apartment was our primary place of residence when the equity was taken out? Or will a tax auditor see the redraw as non-tax deductable?
Any suggestions appreciated!
Cheers!
— MJ.
It is easy to get to the top after you get through the crowd at the bottom.
— Zig ZiglarHi MJ
The ATO will want to look at what the funds were used for. in this case reducing non investment related expenses. Therefore if audited, you may be in trouble if you were to claim interest on the 80% LVR.
(I am not an accountant)
Terryw
Discover Home Loans
Parramatta
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MJ,
I’d suggest that you set up the investment loan so that the difference up to the 80% LVR was available for redraw to pay for expenses relating to the property once it becomes an IP.
IE. Pump all the rental income into your PPOR loan and draw down any IP related expenses from the IP Loan. It will keep the tax man happier, as you can prove that the money being drawn is related to the IP. Plus it’s good to know that you have money there as an emergency for repairs etc if required.
It’s a slower, but effective way of increasing your Investment debt.Mal
Getting out of your comfort zone, can help you become comfortable
Hi all,
Thanks for the responses so far.
Someone I know suggested a creative way to redraw money.
Basically, withdraw the 7.2% out of our unit and use these funds to purchase shares. Thus, the equity has been used for income-generating/investment purposes.
Then, sometime in the ‘future’, sell the shares and and then bank the cash for whatever personal purpose.
I’d then have proof of the share certificate to show the tax office that the money was used for investment. Any reason can then be used for the sale of the shares.
Would this work?
Cheers!
— MJ.
It is easy to get to the top after you get through the crowd at the bottom.
— Zig ZiglarMJ
I asked this question to my accoutant years ago (great minds think alike), he said the ATO would want you to pay back your loan for the shares if you sold them. Can’t really claim interest on something you no longer own – unless whatetver it was went under maybe.
Terryw
Discover Home Loans
Parramatta
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MJ,
Terry is right on this one. I use equity for shares, but on sale you should use pay back the capital component (original purchase value) back into the loan, you can keep the profit but not the principal.
Mal
Getting out of your comfort zone, can help you become comfortable
Thanks Terry and Mal for your responses!
I guess it’s not ‘fair’ to claim interest charges on something that isn’t associated with earning an income. Go the tax system.
I’ll probably just use the 7% extra as a downpayment for our next place.
Cheers,
— MJ.
It is easy to get to the top after you get through the crowd at the bottom.
— Zig ZiglarSell the apartment..put profits into your PPoR(value should’ve increasedon both by the time PPoR is completed).use the equity to purchase another IP?
Buy the PPoR as an IP through the correct structure and rent it to yourself..again as above use the equity from the first property to purchase the next IP in the same structure?
How about then using Intertest Only Loans on both facilities reducing your loan payments..?
just throwing some thoughts around..
“Money is a currency, like electricity and it requires momentum to make it Effective”
Count The Currency With This Online Positive Cashflow CalculatorOriginally posted by mja:The goal is to reduce non-deductable debt.
My wife and I currently live in our apartment, which has a mortgage of 72.8% LVR and is our primary place of residence. We’re building a house that should be ready in the May-June time period this year, that we will be moving into. Thus, our apartment will then be rented out and become an income producing asset.
It is for this sort of reason that a good broker will recommend an interest only loan with offset account.
This way should an individual ever move out of ‘home’ and turn it into an IP then they can either take their cash into the deal or change the offset link so the interest savings are transferred over to their new home.
Not a broker so take what I say with a grain of salt.
Derek
[email protected]
http://www.pis.theinvestorsclub.com.au
0409 882 958
Skype – derekjones2113Originally posted by Derek:Originally posted by mja:The goal is to reduce non-deductable debt.
My wife and I currently live in our apartment, which has a mortgage of 72.8% LVR and is our primary place of residence. We’re building a house that should be ready in the May-June time period this year, that we will be moving into. Thus, our apartment will then be rented out and become an income producing asset.
It is for this sort of reason that a good broker will recommend an interest only loan with offset account.
This way should an individual ever move out of ‘home’ and turn it into an IP then they can either take their cash into the deal or change the offset link so the interest savings are transferred over to their new home.
Not a broker so take what I say with a grain of salt.
Derek
[email protected]
http://www.pis.theinvestorsclub.com.au
0409 882 958
Skype – derekjones2113I am a broker and Derek is spot on.
Pay down principle in offset only if you think your PPOR will ever be an IP.
Cheers,
Simon Macks
Residential and Commercial Finance Broker
***NODOC @ 7.15% to 70% LVR***
[email protected]
0425 228 985Comments may not be relevant to individual circumstances. If you intend making any investment, financial or taxation decision you should consult a professional adviser.
Hi Redwing,
Thanks for your comments – I’ve thought about selling the apartment to avoid CGT. But since this is our first property, I’d like to have a bit of experience of actually being a landlord.
Besides, this unit can fetch $380 to $400/week unfurnished.
Cheers!
— MJ.
Originally posted by redwing:Sell the apartment..put profits into your PPoR(value should’ve increasedon both by the time PPoR is completed).use the equity to purchase another IP?
Buy the PPoR as an IP through the correct structure and rent it to yourself..again as above use the equity from the first property to purchase the next IP in the same structure?
How about then using Intertest Only Loans on both facilities reducing your loan payments..?
just throwing some thoughts around..
“Money is a currency, like electricity and it requires momentum to make it Effective”
Count The Currency With This Online Positive Cashflow CalculatorIt is easy to get to the top after you get through the crowd at the bottom.
— Zig ZiglarHi Derek!
Indeed! We originally had a split fixed/variable loan with Maxis Loans (subsidary of ING somewhere I think), then broke free of them and went with ANZ.
We have two interest-only loans with two separate offset accounts for each property.
Because of the amount borrowed, the rate is a “special” 6.62% variable. I’d be interested to hear what the mortgage broker’s on this forum think about this rate…I’m not interested in moving financiers again because of mortgage stamp duty among other things.
Cheers!
— MJ.
Originally posted by Derek:Originally posted by mja:The goal is to reduce non-deductable debt.
My wife and I currently live in our apartment, which has a mortgage of 72.8% LVR and is our primary place of residence. We’re building a house that should be ready in the May-June time period this year, that we will be moving into. Thus, our apartment will then be rented out and become an income producing asset.
It is for this sort of reason that a good broker will recommend an interest only loan with offset account.
This way should an individual ever move out of ‘home’ and turn it into an IP then they can either take their cash into the deal or change the offset link so the interest savings are transferred over to their new home.
Not a broker so take what I say with a grain of salt.
Derek
[email protected]
http://www.pis.theinvestorsclub.com.au
0409 882 958
Skype – derekjones2113It is easy to get to the top after you get through the crowd at the bottom.
— Zig ZiglarHi all!
I just had a flash of insight. I blame Michael Yardney, as this idea is from his new book.
I’ll put figures in here to see if they make sense.
Current loan on our apartment is $265000. Previous valuation is $365000.
Therefore, this would be an LVR of 72.6%.
Drawing this up to 80% LVR would give us $27000 to play with.
Now here’s the kicker… put this $27000 into the offset account attached to the apartment and then this can be used to cover any shortfall between rent and mortgage payments.
My wage and my wife’s wage can then go straight into our PPOR without having to worry about two mortgages.
Then get the unit revalued in say 12 months time and use the extra equity generated to get another IP.
Would a line of credit be better than getting a lump sum now that sits in an offset account or is it pretty much the same?
Cheers!
— MJ.
It is easy to get to the top after you get through the crowd at the bottom.
— Zig Ziglar
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